Despite the implementation of the Affordable Care Act (ACA), healthcare is more expensive in the United States than ever. In 2020, the average health insurance monthly premium was $456 for individuals and $1,152 for families of two or more^[1].

Those numbers increased 68% and 73%, respectively, from what they were during the ACA’s first nationwide enrollment period in 2014. That’s nearly four times the rate of inflation, which has many people in desperate need of a more affordable alternative^[2].

A Health Savings Account or HSA can’t replace your costly insurance policy alone, but it can play a vital role in developing a more affordable healthcare strategy. Here’s what you should know about HSAs, including how they work, how to use them, and when they’re a good idea.

What is an HSA?

An HSA is a tax-advantaged account that essentially subsidizes your medical costs. Your contributions, returns within the account, and withdrawals for qualified medical, dental, or vision expenses are all tax-free.

Unlike many other tax-advantaged accounts, HSAs aren’t designed for retirement. You don’t have to meet a minimum age threshold to take your funds out and spend them, as long as you’re making a withdrawal for eligible healthcare services.

That includes things like deductibles, copays, and prescriptions for your spouse, children, or other qualified dependents. There are limits, though. For example, the expenses only qualify if you incur them after establishing your HSA, and health insurance premiums don’t qualify unless they’re for Medicare or COBRA.

If you take money out of your HSA and spend it on anything other than qualified medical expenses, you’ll pay ordinary income taxes on your withdrawals. If you do so before you turn 65, you’ll also incur a 20% penalty.

📗 For a detailed breakdown of eligible HSA expenses, review IRS Publications 502 and 969 or a list from a health insurance provider like Cigna.

Who Can Open an HSA?

Unfortunately, not everyone is eligible to open an HSA. To qualify, you must have a High Deductible Health Plan (HDHP) that meets specific Internal Revenue Service (IRS) requirements. These include:

• A minimum deductible of $1,400 for self-only plans and $2,800 for a family plan.
• A maximum out-of-pocket amount of $7,050 for self-only plans and $14,100 for family plans.
• The plan can’t provide benefits other than preventive care until you meet your deductible.

In addition, you generally can’t have other health coverage, including Medicare, and no one can be able to claim you as a dependent on their tax return.

⚠️ When you shop for an HDHP on the ACA marketplace, it tells you whether or not it’s eligible for an HSA. Make sure you double-check before committing since you can’t change your mind until the next enrollment period.

How Do HSAs Work?

HSAs work similarly to many other tax-advantaged accounts. You contribute your funds, they grow within your account, and you take them out when you need them. However, some aspects of the process are unique to HSAs. Here’s a more detailed explanation of the mechanics.

Setting Up an Account

If you’re an employee and get an HSA-eligible HDHP through your company, they may offer you an HSA too. If you don’t like its terms or are self-employed, you can also open an HSA independently.

The HSA Search tool lets you compare hundreds of providers. To find the best option for you, review each account’s fees, investment options, and various features. For example, some HSAs don’t let you spend the funds in them directly.

Contributions

If your HDHP has self-only coverage, you can contribute $3,650 per year to your HSA. If your HDHP also covers one or more family members, you can contribute $7,300 per year. In both cases, people over 55 get an additional $1,000 catch-up contribution.

Your employer or spouse can also contribute, but the same annual limits apply. Even if both spouses have HSAs and qualify for family coverage, they can only contribute a combined $7,300 per year between both accounts.

⚠️ These are the limits for the 2022 tax year, but the numbers increase with inflation over time.

To put money in your HSA, you can set up a payroll deduction with your employer (if the account is through them) or transfer funds from a bank account. The former option excludes the contributions from your wages, making them completely tax-free.

If you make the contributions directly, you must deduct them from your gross income when you file your taxes. That lets you avoid paying federal and state taxes on the amount, but you’ll still incur the 7.65% FICA tax for Social Security and Medicare.

Investing Within the Account

Each HSA has its own investment options. Some merely provide a small return like a savings account, while others let you purchase certificates of deposit, stocks, or mutual funds.

Keep your time horizon in mind when you decide how to split your funds. For example, if you think you’ll need the money in a few years, you probably don’t want it all in mutual funds.

Withdrawals

There are also two general ways to take funds out of your account. You can spend them directly with a debit card linked to your HSA, or you can pay for expenses out of pocket and reimburse yourself later.

Fortunately, if you choose the latter, there’s no deadline. You can seek reimbursement years later if you want. That can be a beneficial strategy since it lets your assets grow within the account for longer.

Either way, keep careful records of all your medical expenses. If the IRS audits you, you need to prove that you used the funds for eligible healthcare services to keep your tax benefits.

Tax Savings

HSAs are unique in that you can get a deduction for your contributions and potentially pay no tax on your withdrawals. Other tax-advantaged accounts only allow one or the other. Because the assets inside grow tax-free as well, you can get a triple tax benefit from your HSA.

📗 Learn More: To use an HSA properly, you need to understand how taxes work for individuals. Check out our deep dive into the subject: Taxation 101: How Do Taxes Work For Individuals?

How to Use an HSA and HDHP for Healthcare

In certain situations, combining an HSA with an HDHP can be a great way to make your healthcare more affordable. Fortunately, using them together is also relatively simple. You can separate the long-term strategy into two distinct phases.

First is the accumulation phase, during which you don’t need much medical care. As a result, a high deductible doesn’t bother you, and you can take advantage of your lower monthly premiums to maximize contributions to your HSA.

💡 It’s a good idea to keep a sizable emergency fund during this period. If you end up needing more medical care than you expected, you want to be able to cover your HDHP’s deductible.

Second is the withdrawal phase. Once you reach an age where your medical needs increase, you can start taking the funds out of your HSA to pay for healthcare as necessary.

You or someone in your family will likely incur medical expenses at some point. However, even if you don’t use all the HSA funds for healthcare, the 20% penalty for spending the money on other expenses goes away at age 65.

If you find yourself in that situation, the account works just as well as any other tax-advantaged retirement account. You’ll pay ordinary income taxes on your withdrawals, but that’s true of a traditional 401(k) and Individual Retirement Account (IRA) too.

When is an HSA a Good Idea?

Leveraging an HSA can be a great way to make your healthcare more affordable, but it’s not the right choice for everyone. Here’s what you should consider before you decide to switch to an HDHP and open an HSA.

Advantages of an HSA

As we’ve discussed, the primary advantage of using an HSA and HDHP combo is that it can mitigate the cost of your medical services by reducing your monthly insurance premiums and overall tax liability.

HSAs are the only accounts that offer a threefold tax benefit. You get an upfront deduction, tax-free growth within them, and tax-free withdrawals for qualified medical expenses.

The second significant advantage of an HSA is its versatility. You, your spouse, and your employer can all contribute. You have the option of using paycheck deductions or direct transfers.

Once your money is in the account, you can often invest in a wide range of assets, including certificates of deposit, stocks, and mutual funds.

Next, you can take the money out at any time without penalty for your family’s medical expenses. Again, you have the choice to spend the funds directly or reimburse yourself with them years after the services occur.

Finally, if it turns out that you have more money in the account than medical expenses, you can use the leftovers as retirement funds without penalty after age 65.

Disadvantages of an HSA

There are few legitimate downsides to an HSA. You have to document your medical expenses, and some people argue HSAs make you more reluctant to spend on healthcare when you need it, but those are relatively easy to overcome.

The real risk is that you have to sign up for an HDHP. If you end up needing significant medical services during the accumulation phase, you’ll be on the hook for an expensive deductible. If that occurs before you have time to build up money in your HSA, you could blow through your cash savings and end up in medical debt.

Who Should Consider an HSA?

Generally, an HSA is best for young, healthy individuals who rarely need to seek out medical care. Ideally, you’d also get an account through your employer so you can contribute via payroll deductions and potentially benefit from a company match.

In these cases, you can drastically reduce your monthly premiums by switching to an HDHP and your tax liability via your contributions to the HSA. As a result, you can save a significant amount of money until you need it for medical expenses later in life.

If you don’t fit that profile, switching to an HDHP to open an HSA could cost you. For example, you’d likely be better off with an insurance plan that has a higher premium and lower deductible if you need to pay for expensive services in the near future.

💡 When in doubt, consider consulting a financial advisor or Certified Public Accountant. They can estimate how much you stand to save in taxes and help you make an informed decision.

Do you have any questions about HSA or how it works? Let us know in the comments below!

Most of us think we know how auto loans work. As with most loans, the interest rate we pay is based primarily on our credit scores, with lenders also looking at our debt-to-income ratio, employment, and other factors. If we’re financially stable we get the best interest rates.

Many of us have seen charts like this one:

Credit score category	Average loan APR for new car	Average loan APR for used car
Deep Subprime (300 to 500)	14.59%	20.58%
Subprime (501 to 600)	11.03%	17.11%
Non-prime (601 to 660)	6.61%	10.49%
Prime (661 to 780)	3.48%	5.49%
Super Prime (781 to 850)	2.34%	3.66%

Source: Business Insider

That seems very neat and very predictable: the higher your credit score, the lower your interest rate. What we forget is that those are averages, and in the real world there’s no assurance that we’ll be offered the right rate for our score.

Most of us don’t think about the great auto loan scam. Many of us don’t know it exists.

Car dealers and lenders have taken billions from consumers, even as we assumed that we were offered the best rates available for our credit score range. How did they do it? Let’s take a closer look.

Anatomy of a Scam

In October 2021 Consumer Reports released a study based on an analysis of nearly 858,000 auto loans. What they found was that consumers with virtually identical financial records were charged wildly different interest rates. Even customers with good credit could end up paying extremely high rates.

The study found that even consumers with excellent credit could be given subprime loans carrying astronomical interest rates.

How does this happen? The conclusion of the study was that in many cases lenders don’t base interest rates on your credit score or financial capacity. They simply charge what they think they can get away with.

The financing you get has a lot more to do with how prepared you are for battle when you walk onto the showroom floor than your financial history.

R.J. Cross, US Public Interest Research Group, via Consumer Reports

The Culprit: Dealer Markups

Experian reports that 61% of new car buyers finance their purchases through a dealer. Dealer financing is simple and you can combine the financing and the car purchase in a single shop. 

Dealers that offer financing don’t lend money themselves. They source loans from independent lenders, often conducting multiple applications to find the cheapest loan. The problem is that the dealers don’t have to pass those savings on to the customer. They can mark up the interest rate and keep the difference as part of their profit margin. Dealers are not required to disclose these markups.

That puts dealers in a position to leverage several key advantages.

• Lack of preparation. Many customers walk into a dealership without getting pre-approved for a loan or doing research into car loan rates.
• Lack of knowledge. Many car buyers don’t know that they can and should shop around for the best loan rates.
• Excitement. New cars are excisiting, especially when a professional salesperson is offering a nice car with what seems like an affordable monthly payment.
• Experience. Car salespeople have dealt with hundreds or thousands of customers and they can spot an easy mark in seconds.

Not every dealer is going to rip customers off. Some will offer the best rate they can. Others will look for a low rate and mark it up to the average to pad their bottom line a little. Others will add as much as they think the customer is willing to pay. Because they get away with it, the incentive to exploit those markups is enormous.

Lax Underwriting Standards

Consumer Reports found that many auto lenders used relatively poor underwriting standards. Only 4% of borrowers had their income checked, and even fewer went through employment verification. As a result, many borrowers were given loans that they couldn’t afford to pay, often paying well above the recommended maximum of 10% of their income.

As a result, delinquencies and repossession were relatively common. 5% of all loans were delinquent, and up to 12% of nonprime and below loans end in repossession.

Dealers can afford to take a lax view of risk because repossession has gotten much easier. GPS trackers and remote engine shutoff devices allow a dealer to locate and disable a vehicle easily. The high profits made on loans at or below the non-prime level make them worth the risk.

For a borrower, repossession can be a major problem. A repossession causes significant damage to the borrower’s credit. If the borrower owes more than the car is worth, which is common with long-term loans, they may be liable for the difference. Without a vehicle, many are unable to get to work.

👉 The bottom line: a borrower cannot assume that the lender will only lend what they can afford to pay. Borrowers need to protect themselves.

Racial Discrimination in Auto Lending

Research has confirmed that racial bias exists in auto lending. A 2019 study by faculty members of the Jones School of Business at Rice University and the Cox School of Business at Southern Methodist University confirmed that borrowers belonging to racial minority groups were less likely to be approved for loans and paid higher interest rates than white borrowers with the same qualifications. The disparity was highest in states with a high prevalence of racial animosity.

The same study found that minority borrowers had lower default rates than their white counterparts. 

A 2018 study by the National Fair Housing Alliance reached similar conclusions.

• Non-White testers were given more expensive options than White testers 62.5% of the time.
• The average total cost difference in those cases was $2,662.56 over the life of the loan.
• White testers were offered more financing options than Non-White testers in 75% of cases.
• Dealers were more likely to offer incentives, rebates, and help with getting lower loan rates to White testers.

The study noted that similar audits in the more heavily regulated mortgage industry found much lower levels of discrimination.

Racial discrimination is closely linked to dealer interest rate markups. Other studies have found that dealers are more likely to mark up interest rates for minority borrowers. Because race is not indicated in credit scores or reports, the actual lenders have no way to determine a borrower’s race. The dealers, who have face-to-face contact with the buyers, are the obvious source of discriminatory decisions.

In 2013 the Consumer Financial Protection Bureau initiated an enforcement policy that reduced the racial disparity in interest rates by 60%. This program was stopped in 2018.

How to Protect Yourself from the Auto Loan Scam

Consumer advocates have proposed laws that would prevent dealer markups on auto loan interest rates. Those laws would go a long way toward eliminating the great auto loan scam. Those laws have not passed yet, and may not pass any time soon. Until they do, consumers have to protect themselves.

Prepare

If you’re thinking of buying a car, don’t start by visiting a dealer. Look closely at your budget and decide what you can pay. Assess your needs and decide what kind of vehicle you want. Do some research into models and prices and decide whether you want a new or used car.

Dealers can be extremely persuasive and it’s easy to get carried away and buy more car than you need. Knowing what you want and what you can afford to spend will help you stay grounded.

Pre-Qualify

Many lenders will pre-qualify you for a car loan with only a soft credit check that has no impact on your credit score. A pre-qualification does not commit the lender to the terms they offer, but it’s a great way to determine what you can afford to spend and which lender will give you the best terms.

Before you visit a dealer, try to pre-qualify with several lenders, including prominent online lenders and your own bank or credit union. Online loan brokers can get you several offers from a single application and are an easy way to compare.

Read each offer in full and ask for clarification if there’s anything you don’t understand. Choose the best offer you receive and bring it with you when you shop.

Stay Smart

Dealers will use every trick in the book to get the most favorable deal for them, and you should do the same. When you visit a dealer, don’t tell them right away that you have pre-qualified for a loan. Keep that to yourself. 

If a dealer thinks they are going to sell you a financing package, they may offer you an attractive price, expecting to get the money back by marking up the financing quote. Ask for a firm price offer in writing before you discuss financing. Stick to your target price and don’t let the dealer sell you on a more expensive model or expensive options that you don’t need.

Compare Offers

Once the dealer has given you a firm price, show your pre-qualified offer and ask the dealer if they can beat it. When the dealer makes a financing offer, compare it point by point with your pre-qualified offer.

Don’t let the dealer talk you into a “deal” with a lower monthly payment or a more expensive car for the same monthly payment. Dealers do this by selling you a longer-term car loan, and these loans come with a whole host of problems. If you can’t afford the monthly payments on a 5-year loan, consider a cheaper car or a used car.

Always compare the total cost of the loan, not just the monthly payment.

💡 If you have to take on a car loan and your credit isn’t great, you may want to refinance when your credit is better. Check your loan offers for prepayment penalties that could make refinancing difficult.

The dealer may offer a better deal than the pre-qualified offer. If they do, take it. If not, you have an option to fall back on.

Shopping for the best loan offer is the most effective way to get the best deal. It’s also the most effective way to protect yourself from car loan scams driven by dealer interest rate markups.

Yes, It’s a Scam… But You Can Protect Yourself

Some dealers defend interest rate markups as a normal part of the business. They’re entitled to their opinions. When we see two people with identical qualifications paying wildly different interest rates, we call that suspicious. If we see borrowers with prime credit scores paying sub-prime interests rates, we call that a scam. When we see minority borrowers paying higher rates despite having lower default rates, we call that discrimination, because it is.

Should government regulators crack down on these practices? Yes, they should. Borrowers should have the right to expect that they will be offered rates and terms consistent with their credit scores and overall risk profile. 

We all understand that people who pose more risk pay higher interest rates. That’s not always fun, but it’s fair. Paying more because the dealer thinks they can work you or doesn’t like the color of your skin is not fair. It’s a scam.

Don’t Be a Victim

Until regulators step up and do their jobs, it’s up to buyers to make sure they aren’t easy marks for this scam. Here’s how.

• Know what’s going on. Understand the practice of dealer markups and what it lets dealers get away with.
• Get informed. Before you shop, check your credit score. Find out what the average interest rate for people with your score. If a dealer offers more, ask why.
• Get pre-qualified. Comparing multiple pre-qualification offers and having an option is the best protection against dealer manipulation.
• Stick to your guns. Car salespeople are pros, but you can stand up for yourself. Stick to your maximum price and force the dealer to beat your pre-qualified offer. Don’t let the dealer sell you a long-term loan.

Even a dishonest car dealer won’t scam everyone. Like all predators, they look for an easy target. Don’t be that easy target, and the chances are the dealer will make their move on someone else.

Consumers shouldn’t have to protect themselves. If lenders were barred from marking up interest rates or at least required to disclose rate markups, car lending would be a lot fairer. Until that happens, the best protections are knowledge and vigilance.

Start investing in dividend stocks can be done for example with a basket of 15+ different individual dividend stocks to accomplish differentiation and risk reduction. Alternatively, you could start with one or more dividend ETFs and even with little money. The question is what is the best dividend ETF? Here is an update on the year-to-date return.

 

 

Earlier this year, we analyzed 10 dividend ETFs and answered the question “What is the best dividend ETF for long-term performance?”, the results can be found on the page Top-5 Best Dividend ETF’s.

As a starting point for the best dividend ETFs for 2022 we analyzed the following dividend ETF’s:

Dividend ETF	Symbol
iShares Core Dividend Growth ETF	DGRO
WisdomTree U.S. Dividend Growth ETF	DGRW
ProShares S&P 500 Dividend Aristocrats ETF	NOBL
Vanguard Dividend Appreciation ETF	VIG
Vanguard High Dividend Yield ETF	VYM

 

As a first checkpoint, we looked at the total return of the 5 dividend ETFs and compared it with the S&P 500 index performance year-to-date in 2021. It is good to see that the ETF’s can follow the S&P 500 index. However, none of the 5 dividend ETFs were able to beat the S&P 500 index. The Vanguard Dividend Appreciation ETF has the worst underperformance with almost 6%.

However, over a 5 years period, the Vanguard Dividend Appreciation ETF paints a different picture and is the best performing dividend ETF.

See here how an initial investment of $100,000 could have grown over the last 5 years.

Our top-5 Dividend ETFs for 2022 are:

1. VIG
2. DGRW
3. DGRO
4. NOBL
5. VYM

Based on the 1 & 5 year total returns, high yield dividend is not the place to be, so the Vanguard High Dividend Yield ETF (VYM) is number 5. The Dividend Aristocrats (NOBL) is probably the most well-known index for global dividend investors and a stable factor in a dividend portfolio. The low percentage allocation to the Technology sector is one of the main reasons why the NOBL-ETF is underperforming and on spot 4.

The top-3 Dividend ETFs are all strong performers over 1, 3, and 5 years. The WisdomTree U.S. Dividend Growth ETF (DGRW) is the most expensive one with an annual fee of 0.28%.

Below is more data on the five dividend ETFs discussed and the option to download to an excel-file format. Data retrieved from etf.com & Morningstar on 24/12/2021.

 

Other Sources of Dividend Investment Ideas

There are several lists to quickly screen for businesses that regularly pay rising dividends.

Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.

Thanks for reading this article.

Please send any feedback, corrections, or questions to service[@]moneyinvestexpert.com.

Back in October 2021, I wrote a post that I was taking a short hiatus from blogging and social media. I am happy to report the hiatus has officially ended…just not in the way I expected.

Vintage Value Investing has officially been sold this week. What motivated me It was a difficult decision for me to make, and I will get into the details shortly, but for now, just know this: it was the most necessary decision for me and where I’m at in my life.in my life.

 

First, I would like to thank everyone for their support and feedback during my hiatus. In the days following the publication of my last post, I didn’t expect such a positive reaction. However, I received a lot of praise, encouragement, and just overall pleasant vibes.

 

Thank you all so much for your support!

 

Now, there are three main reasons (in order of importance) why I decided to sell VVI. Let’s start with number one.

 

 

VVI has become less and less attractive to me (probably for the better). When I bought the site, the majority of the content was about Warren Buffett, Charlie Munger, and many other value investing legends. This is not a bad thing at all, and we can learn a lot from the GOATs.

 

However, Warren Buffett and Charlie Munger are both old news, despite their greatness.

 

The fact that Buffett and Munger have been around for decades is not intended as an insult. Buffett is now 91 years old, and Munger is close to 100! These two have lived long and incredible lives.

 

Though I still have enormous respect for them, how much more can be said about them that hasn’t already been said? The older they get, the less active they become, and I can’t imagine that will change any time soon. Despite their geriatric states, they continue to make headlines.

 

Although I like the current content on the site, it doesn’t appeal to me much anymore. Throughout their careers, Munger and Buffet have said and done some amazing things. However, spouting their platitudes isn’t much fun when they’ve already been done a trillion times before.

 

Furthermore, I no longer think of myself as a “value investor”. Don’t get me wrong, my portfolio doesn’t include crypto, NFTs, and meme stocks like your average r/wallstreetbets bro.

 

No, I remain a rational and deep-thinking investor. But value investor? I really don’t know. There are so many stereotypes associated with growth and value (even though I’ve thoroughly debunked it) that I just don’t want to be labeled as either.

 

My goal is to simply be known as an investor, find my own path, and avoid any labeling.

 

In my hiatus, the more I thought about this, the more I cringed at the thought of writing for VVI again. I just find it no longer suited to the way I think now.

 

From this perspective, I hope you can understand my desire to move on. Growth in one’s self can be rewarding, but it can sometimes be costly.

 

 

You may recall from my Coming Clean post that I will be leaving active duty after a little more than 10 years of service. Even now, I need to start preparing for what is shaping up to be a big life event.

 

My wife is still on the hunt for a job back in the U.S. Over the holiday season, she struggled quite a bit. However, since the new year she has received a flood of replies and interviews. I have a feeling we’ll hear some good news soon…I hope!

 

In the meantime, I am in limbo. Naturally, I intend to start school in the fall, but where I choose to enroll depends heavily on where my wife lands a job.

 

In the next few months, we have a lot to do. In case my wife gets a job, we will need to stop everything, fly back to the US, and make sure she has a smooth transition. This includes getting a new car, temporary housing, and just all around life stuff.

 

After that, I would fly back to Germany (alone, but not afraid) and serve the remainder of my active duty time while preparing for separation and moving my household goods.

 

The next six months are likely to be a very volatile time in my life, and I just don’t have time or inclination to commit to anything else. My focus needs to be on this next step and making the right decisions.

 

 

Over the past few years, I’ve been saving for this separation. I have enough…I think.

 

However, I have no idea what will happen in the next six months. I could need to live off my savings for a much longer period than expected during this transition (I hope not!).

 

Therefore, I decided that cashing out now could give me more of a safety net and some peace of mind. VVI’s sale could be enough to pay for a year or two of rent depending on where we end up living.

 

Should the unexpected happen, I’ll have extra money to fall back on.

 

 

All of VVI’s content (including this newsletter) will be absorbed by the buyers. The buyers are the owners of FinMasters.com. Right now, it’s primarily a personal finance site, but they are writing more content on value investing in order to diversify their base.

 

They thought that VVI’s content would be a great addition to help them gain an edge in this space. After meeting them personally, I am confident that they will respect VVI’s content and voice.

 

 

In order to give the new owners time to successfully integrate VVI’s content into their own, I have agreed to a non-compete clause for six months. As a result, I will not be starting any new blogs or newsletters until around July/August.

 

The timing works out perfectly, since all the life transition should be completed around that time.

 

As of now, I do plan to return in some way. There are a few ideas I have, but I doubt it will be on the same scale as VVI. It’ll be a more personal project in which I will be free to express some of my ideas.

 

My Twitter and Commonstock accounts will remain active until then. I will be surrendering the VVI social media accounts, so I have created my own personal ones. Here are the links to my updated personal accounts if you wish to follow me.

 

 

 

Thanks to everyone who read and supported VVI. It has been a wonderful experience. So many new people have been introduced to me during this endeavor, and I’ve learned a lot from them. It’s been fantastic.

 

Keep in touch with me on social media to stay up to date, because I won’t be absent for very long.

 

Until next time!

 

Invest wisely,

Dillon Jacobs

Key points:

• The UK Dividend Aristocrats Index is created by S&P and is based on a managed dividends policy of increasing or stable dividends for at least 10 consecutive years.
• Only 39 UK stocks are a member of this list.
• In Europe, it is not common to focus on paying a dividend in a row ( consecutive years) to the shareholders.

 

In 2021, the UK Dividend Aristocrats index produced a total return of 14.83%. As a reference, the S&P United Kingdom gained almost 20% in 2021.

The annualized total return over 10 years is 6.19% for the UK Dividend Aristocrats. The indicated dividend yield is around 4.7% and the average projected PE is 14.1 for the stocks in this index.

New UK Dividend aristocrats added to the index in 2022 are:

• Spirax-Sarco Engineering PLC
• Hikma Pharmaceuticals Plc
• Bunzl plc
• IG Group Holdings plc

By end of October, Wm Morrison shares have been delisted from the London stock exchange after 54 years as a public company. Hence, Wm Morrison is no longer part of the  UK Dividend Aristocrats list.

In June 2021, S&P has announced an update to the Monthly Dividend Review (“MDR”) for the UK and high-yield euro dividend aristocrats.

A relevant change is to focus more on the quality of dividend. The Constituent Selection Rule is now:

“Stocks must have increased or maintained stable dividends for at least 10 consecutive years. Stocks cannot have an indicated yield of more than 10% as of the index rebalancing reference date. In addition, new index constituents must have a maximum 100% dividend payout ratio, and existing index constituents must have a non-negative dividend payout ratio”

New UK Dividend aristocrats added to the index in July 2021 are:

• Diploma plc
• BAE Systems plc
• Electocomponents plc
• Rio TInto Group plc
• Dechra Pharmaceuticals plc
• Admiral Group
• Primary Health Properties plc

The table below lists all current 39 constituents, with indicated dividend yield and lists returns over trailing last month, and year-to-date.

 

 

The average dividend yield for all the UK dividend aristocrats is around 5% at the moment of writing. Here are the 10 highest UK dividend aristocrats yields:

 

 

 

 

Other Sources of Dividend Investment Ideas

There are several lists to quickly screen for businesses that regularly pay rising dividends.

Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.

Thanks for reading this article.

Please send any feedback, corrections, or questions to service[@]moneyinvestexpert.com.

 

• The Dividend Aristocrats gained 7.34% in December 2021 and outperformed the broader S&P 500 which jumped 4.48%.
  
• In total, the Dividend Aristocrats gained 25.99% in 2021, underperforming the S&P 500 index by 2.72%.
• The Dividend Aristocrats are a select group of currently 65 S&P 500 stocks with 25+ years of consecutive dividend increases.
• By showing the recent performance of the Dividend Aristocrats, some active dividend growth investors may be able to identify relative bargains.

 

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The S&P 500 index (SPY) returned almost 29%, despite the ongoing pandemic, record inflation, and looming rate hikes. The Dividend Aristocrats (NOBL) were for the third year in a row not able to keep up with the S&P 500 index. However, in the long run, this dividend growth strategy is still showing a better performance.

Historical Performance

The current 10-years annualized return is 15.41% for the Dividend Aristocrats (NOBL) versus 16.55% for the S&P 500.

So, good to keep in mind that over a time period of 30 years and multiple recessions, the dividend aristocrats’ strategy has outperformed the S&P 500 by nearly 2% per year.

The current dividend yield is 2.24% well above the 1.27% for the S&P 500 index.

 

Dividend Aristocrats performance in 2021

 

Gains for the Dividend Aristocrats were very good in the month of December with 60 constituents producing positive returns and only 5 constituents with negative returns.

The table below lists all 65 constituents, including the three 2021 dividend aristocrats IBM, NextEra Energy & West Pharmaceutical Services, sorted by indicated dividend yield, and lists price returns over trailing last month, and full-year 2021.

Here is what happened in December:

• Hormel Foods (HRL) returned 17.90% in December based on reporting strong Q4 double-digit sales growth in every segment.
• AbbVie (ABBV) closed the year up with a return of 17.45% in December.
• Laggards in December are Albemarle (ALB), Target (TGT), and Medtronic (MDT). Wells Fargo has downgraded MDT to Equal Weight from Overweight
• AT&T, Exxon Mobil, and IBM are still the top-3 highest dividend yield payers.

The above-presented performance and earnings data on the Dividend Aristocrats could assist active dividend growth investors to find some bargains for the long run.

Here is what happened in 2021:

• The Dividend Aristocrats gained 25.99% in 2021, while the S&P 500 index returned 28.71%.
• 57 Dividend Aristocrats delivered a positive price return while only 8 stocks were down for the full-year 2021.
• Leaders in 2021 were Nucor (NUE), West Pharmaceutical Services (WST), and Lowe (LOW).
• Laggards were especially AT&T (T) due to the dividend impact of the spinoff of Warner Media and its merger with Discovery. Also, Clorox (CLX), and VFC ended the year lower.

 

Other Sources of Dividend Investment Ideas

The Dividend Aristocrats list is not the only way to quickly screen for businesses that regularly pay rising dividends.

• The Dividend Kings List is even more exclusive than the Dividend Aristocrats.  It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
• The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market on the long-term.
• Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
• For the European focused investors there is also the list of European Dividend Aristocrats.
• Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
• 100+ years of dividend, the list of stocks that pay over 100 year of dividend can be an list of inspiration.

Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.

Thanks for reading this article.

Please send any feedback, corrections, or questions to service[@]moneyinvestexpert.com.

US Inflation has jumped to a 6.8% increase in November, which is exceptionally high in the last two decades. The Fed hints at three rate hikes in 2022, it might benefit dividend investors to analyze their portfolio and invest in dividend stocks that protect against those high rates. The Fed also stated that the current high inflation is not considered to be transitory.

 

 

A good starting point to identify dividend stocks to consider for this high inflation rate and rising interest rates is the Fidelity Dividend ETF for Rising Rates. The main objective of this ETF is to follow the “Fidelity Dividend Index for Rising Rates”, which is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.

The Fidelity Dividend ETF For Rising Rates has an average annualized return of 14% since inception.

Top holdings include for example Apple, Pfizer, and Home Depot, and in this way, the ETF provides dividend growth stocks across various sectors. About 30% of its total fund weight is invested into the top 10 holdings, which are:

Apple Inc	7.39%
Microsoft Corp	7.16%
UnitedHealth Group Inc	2.46%
Pfizer Inc	2.42%
Home Depot Inc	2.09%
Johnson & Johnson	2.06%
JPMorgan Chase & Co	1.84%
Abbvie Inc	1.68%
Bank of America Corp	1.63%
Visa Inc	1.62%

 

All ten dividend stocks have the ability to grow their dividends and were able to do so during the covid period last year.

Another angle is to look at financial stocks since higher interest rates could mean an improvement in interest income for banks and higher stock prices in the end. For the top-10 list above JPMorgan Chase (JPM) is a strong dividend payer and has raised dividend payout for 11 consecutive years. The current dividend yield is 2.54% and net interest income reported in the last quarter already grew slightly.

Furthermore, we would like to highlight the dividend aristocrat Aflac (AFL) as a dividend stock to consider for the rising interest rate environment. Aflac is a diversified insurance corporation and generates profits from underwriting policies and investing in financial assets. They could also benefit from higher rates and are a strong dividend payer with a dividend yield of 2.25% and a track record of 39 years of consecutive dividend increase.

 

Other Sources of Dividend Investment Ideas

There are several lists to quickly screen for businesses that regularly pay rising dividends.

Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.

Thanks for reading this article.

Please send any feedback, corrections, or questions to service[@]moneyinvestexpert.com.

 

 

 

Start investing in dividend stocks can be done for example with a basket of 15+ different individual dividend stocks to accomplish differentiation and risk reduction. Alternatively, you could start with one or more dividend ETFs and even with little money. The question is what is the best dividend ETF? Here is an update on the year-to-date return.

 

 

Earlier this year, we analyzed 10 dividend ETFs and answered the question “What is the best dividend ETF for long-term performance?”, the results can be found on the page Top-5 Best Dividend ETF’s.

As a starting point for the best dividend ETFs for 2022 we analyzed the following dividend ETF’s:

Dividend ETF	Symbol
iShares Core Dividend Growth ETF	DGRO
WisdomTree U.S. Dividend Growth ETF	DGRW
ProShares S&P 500 Dividend Aristocrats ETF	NOBL
Vanguard Dividend Appreciation ETF	VIG
Vanguard High Dividend Yield ETF	VYM

 

As a first checkpoint, we looked at the total return of the 5 dividend ETFs and compared it with the S&P 500 index performance year-to-date in 2021. It is good to see that the ETF’s can follow the S&P 500 index. However, none of the 5 dividend ETFs were able to beat the S&P 500 index. The Vanguard Dividend Appreciation ETF has the worst underperformance with almost 6%.

However, over a 5 years period, the Vanguard Dividend Appreciation ETF paints a different picture and is the best performing dividend ETF.

See here how an initial investment of $100,000 could have grown over the last 5 years.

Our top-5 Dividend ETFs for 2022 are:

1. VIG
2. DGRW
3. DGRO
4. NOBL
5. VYM

Based on the 1 & 5 year total returns, high yield dividend is not the place to be, so the Vanguard High Dividend Yield ETF (VYM) is number 5. The Dividend Aristocrats (NOBL) is probably the most well-known index for global dividend investors and a stable factor in a dividend portfolio. The low percentage allocation to the Technology sector is one of the main reasons why the NOBL-ETF is underperforming and on spot 4.

The top-3 Dividend ETFs are all strong performers over 1, 3, and 5 years. The WisdomTree U.S. Dividend Growth ETF (DGRW) is the most expensive one with an annual fee of 0.28%.

Below is more data on the five dividend ETFs discussed and the option to download to an excel-file format. Data retrieved from etf.com & Morningstar on 24/12/2021.

 

Other Sources of Dividend Investment Ideas

There are several lists to quickly screen for businesses that regularly pay rising dividends.

Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.

Thanks for reading this article.

Please send any feedback, corrections, or questions to service[@]moneyinvestexpert.com.

For dividend growth investors in Europe, we created a European Dividend Aristocrats certificate to easily track and invest in the European edition of the famous Dividend Aristocrats. With respect to the 2021 performance, the European Dividend Aristocrats outperformed the EuroStoxx 50 index significantly.

 

The European Dividend Aristocrats portfolio (EUDIVAR) gained 25.72% (all fees have already been deducted), while the European Index gained 20.75% in 2021. This is an outperformance of +4.97%. Compared to the Germany DAX the outperformance is even more significant since the DAX-index gained “only” 16.21%.

 

The five top European Dividend Aristocrats top performers are:

1. Ashtead Group (GB0000536739)
2. Croda (GB00BJFFLV09)
3. DSV Panalpina (DK0060079531)
4. Partners Group (CH0024608827)
5. Hexagon (SE0015961909)

The five top European Dividend Aristocrats laggards are:

1. Fresenius Medical Care (DE0005785802)
2. Fresenius SE & Co (DE0005785604)
3. GN Store Nord (DK0010272632)
4. AVEVA Group (GB00BBG9VN75)
5. Telenor (NO0010063308)

In total, the stocks in the portfolio generated €227,336 in net dividend in 2021 after withholding tax. The net dividend yield is just below 2%. The dividend withholding tax within the fund is optimized to 10.9% which could be a benefit for many European investors.

 

More information can be found on https://www.wikifolio.com/en/int/w/wf0eudivar or https://www.wikifolio.com/de/de/w/wf0eudivar (German website)

The performance can also be followed on several financial portals such as Onvista or via your online broker. Recently the broker JustTRADE.com opened its doors for trading in this ETF.

 

 

The European Dividend Aristocrats portfolio (EUDIVAR) includes all companies that have increased dividends every year for the last 10 consecutive years and are part of the MSCI Europe-index.

The holdings are equally weighted and every quarter an automatic rebalance will be performed. Companies that cut or postpone their dividend payments will be closely monitored and removed when required. In addition, new companies that meet the criteria will be added during the year. The dividends received will be reinvested automatically as well.

The tracker is officially listed on the German stock exchange Stuttgart and can be traded via several brokers such as Comdirect, Flatex, Onvista Bank, ING DiBa, Postbank, and many more.

European Dividend Aristocrats tracker benefits

When building a dividend growth portfolio, the most prominent advantages of the European Dividend Aristocrats tracker are:

Low Initial Investment. The minimum investment is limited only by your broker’s minimum account size and the brokerage fees related to the amount to be invested.

Automatic Diversification. By investing in the European Dividend Aristocrats tracker, you get the benefits of spreading your investment across all (45+) Dividend Aristocrats. You also get diversification across sectors and countries.

Automatic rebalancing. Every quarter rebalancing will be automatically done as well as dividend reinvesting without transaction costs. New aristocrats will be added and companies that cut or postpone dividend payments will be removed.

Dividend Tax benefits. Dividend withholding tax and dividend reclaims are often complex and time-consuming. Investors will benefit from lower dividend taxation via this European Dividend Aristocrats tracker. For several stocks that pay dividends and are traded in euro (€) the gross dividend amount will be received in this tracker.

 

In brief:

• The Dividend Aristocrats are companies of the S&P 500 that have paid steadily increasing dividends for at least 25 years have outperformed the broader market over time.
• An annual rebalancing takes place every year, with new additions and deletions.
• One company could join the dividend aristocrats list in 2022.

The Dividend Aristocrats are the ‘best of the best’ dividend growth stocks. They have a long history of outperforming the market and with lower volatility. The lower volatility gives some investors “peace of mind” but comes also with a price. In 2021, the total return of the dividend aristocrats is underperforming the S&P 500-index again.

 

 

Let’s have a look at how the Dividend Aristocrats Index has changed in 2021 first.

The requirements to be a Dividend Aristocrat are:

• Must be a member of the S&P 500 index
• Have 25+ consecutive years of dividend increases
• Meet certain minimum size & liquidity requirements
• S&P also applies certain diversification rules.

On January 22nd, 2021, International Business Machines (IBM), NextEra Energy (NEE), and West Pharmaceutical Services (WST) were added to the Dividend Aristocrats Index. Carrier Global (CARR), Otis Worldwide (OTIS), and Raytheon Technologies (RTX) were all removed. As a result, there are now 65 (US) Dividend Aristocrats.

See S&P News and annoucements

(See also an overview of all changes since 2009)

 

 

One member of the S&P 500 index had 24 consecutive years of dividend increases at the start of 2021 and did raise its dividend by 5% in 2021. This means that Church & Dwight (CHD) should reach the dividend Aristocrat status during the index rebalance in January 2022

Church & Dwight is a consumer staples company that manufactures and distributes products under a number of well-known names like Arm & Hammer, Trojan, OxiClean, Spinbrush, First Response, Waterpik, Nair, Orajel, and XTRA. The company was founded in 1896, has increased its dividend for 25 consecutive years, and trades with a market capitalization of $20+ billion.

Church & Dwight declared a quarterly dividend of $0.2525 per share, which is a  5.2% increase from the prior dividend of $0.2400.

The annual dividend from Church & Dwight started in 1976and  can be found in the following table and the chart 1996.

Year	Annual Dividend
1976	$0.0074
1977	$0.0080
1978	$0.0086
1979	$0.0093
1980	$0.0105
1981	$0.0111
1982	$0.0122
1983	$0.0139
1984	$0.0151
1985	$0.0163
1986	$0.0171
1987	$0.0179
1988	$0.0192
1989	$0.0217
1990	$0.0250
1991	$0.0283
1992	$0.0317
1993	$0.0350
1994	$0.0367
1995	$0.0367
1996	$0.0367
1997	$0.0383
1998	$0.0400
1999	$0.0433
2000	$0.0467
2001	$0.0483
2002	$0.0500
2003	$0.0517
2004	$0.0567
2005	$0.0600
2006	$0.0650
2007	$0.0750
2008	$0.0850
2009	$0.1150
2010	$0.1550
2011	$0.3400
2012	$0.4800
2013	$0.5600
2014	$0.6200
2015	$0.6700
2016	$0.7100
2017	$0.7600
2018	$0.8700
2019	$0.9100
2020	$0.9600
2021	$1.0100

 

The dividend increases started again in 1997. The rolling  5- and 10-year period annualized dividend growth rates are 7.30% and 11.50%. The current dividend yield is 1.03% and the payout ratio is 33.8%